[LOGO] IAI
MUTUAL FUNDS
August 17, 1998
DEAR VALUE FUND SHAREHOLDER:
Enclosed is a supplement to the Value Fund prospectus dated August 1, 1998. This
supplement details recent changes in the valuation of one of the Fund's
underlying securities.
As you know, the IAI Mutual Funds have temporarily closed the IAI Value Fund to
most new purchases. Closing the Fund is intended to protect existing
shareholders by preventing individuals from speculating on short-term purchases
and sales of Fund shares.
As we have previously informed you, shareholders participating in a systematic
purchase plan or a retirement plan allocation as of May 12, 1998 may continue at
their current levels. No increases in these plans or allocations may be made at
this time. We intend to reopen the Fund when we feel it is in the best interests
of the shareholders.
We feel it is important to keep our shareholders informed of recent changes in
the status of the Fund. We appreciate your continued trust and confidence in
IAI.
P.O. BOX 357, MINNEAPOLIS, MINNESOTA 55440-0357 USA FAX 612.376.2737
612.376.2700
<PAGE>
IAI Investment Funds VIII, Inc.
File No. 2-84589
SUPPLEMENT DATED AUGUST 17, 1998
TO THE JOINT PROSPECTUS DATED AUGUST 1, 1998
OF
IAI VALUE FUND
(A PORTFOLIO OF IAI INVESTMENT FUNDS VIII, INC.)
Value Fund generally closed to new investors on May 12, 1998. Shareholders of
Value Fund as of such closing date may continue to add to an account through the
reinvestment of dividends and cash distributions on any Value Fund shares owned,
through an existing systematic purchase or exchange plan, or through an existing
retirement plan allocation. No changes in these plans or allocations having the
effect of increasing current purchases of Value Fund shares will be permitted
while the Fund is closed.
Value Fund invests from time to time directly in privately held, early-stage
developing companies. One such company (the "Venture Company") filed a
registration statement in May 1998 with the SEC for the purposes of offering its
securities for public sale, also known as an initial public offering or "IPO".
Fund management has monitored this investment on a daily basis and adjusted the
investment's value when required using a fair value methodology consistent with
the Fund's pricing procedures. During this period, the Venture Company
rescheduled its target IPO date several times, and ultimately postponed the IPO
indefinitely on August 14, 1998. Published reports concerning the postponement
noted unstable market conditions and the Venture Company's position that it did
not need the IPO to raise operating cash right now. The Fund does not know at
this time when and whether the IPO will proceed. Given this announcement, the
Fund's Board of Directors on August 14, 1998 decreased the value of the Fund's
investment in the Venture Company. Even with this decrease in valuation, the
Fund's investment in the Venture Company continues to present increased risks,
as discussed elsewhere. Certain of these risks results from the large percentage
of the Value Fund's net assets invested in the Venture Company (approximately
24% as of August 14, 1998).
The Venture Company intends to become a leading provider of high quality, low
cost, long haul telecommunications capacity to second and third tier markets
throughout the United States primarily by upgrading existing wireless
infrastructure to develop a state-of-the-art, digital SONET network. The Venture
Company believes there is a substantial market opportunity available to it, and
that it will enjoy various competitive advantages.
However, the Value Fund investment in the Venture Company is subject to the
significant risks of investing in small and early-stage developing companies
described in the sections "Venture Capital" and "Special Risk Factors Associated
with Investing in Small Companies". The investment in the Venture Company is
also subject to other significant risk factors including: (1) its limited
history of operations, operating losses and negative cash flow; (2) its
significant capital requirements and uncertainty of obtaining additional
financing; (3) its substantial use of leverage, and its ability to service its
current and substantial additional indebtedness; (4) its ability to timely and
cost-effectively complete its digital network, and sell a substantial amount of
its capacity; (5) its ability to maintain and add
<PAGE>
additional long-term contractual relationships with various entities to enable
it to deploy its network; (6) its ability to manage its future anticipated
growth; (7) its dependence on key personnel; (8) its ability to successfully
compete in the highly competitive telecommunications industry, where price
competition has generally been intense and is expected to increase; (9) its
substantial reliance on a single supplier of telecommunications equipment; (10)
the existence of various technical limitations on its network; (11) the risk of
rapid technological changes in the telecommunications industry; (12) the
existence of substantial regulation by federal, state and local governmental
agencies of its digital network; (13) the possibility that wireless equipment
may pose health risks to humans due to radio frequency emissions; (14) the fact
that the Venture Company does not expect to pay cash dividends for the
foreseeable future; and (15) the risk that the IPO will not occur.
The Venture Company's securities held by the Value Fund will be subject to
substantial restrictions on sale even after the Venture Company's IPO, because
the underwriters of the Venture Company's IPO have requested that the Fund not
sell or otherwise transfer the Venture Company's stock during the 180-day period
following the effective date of the IPO. At this time, given the indefinite
postponement of the IPO, fund management is seeking to have such restrictions
removed.
As of August 14, 1998, approximately 40% of the Value Fund's assets (including
the Venture Company's securities) were illiquid. Since market quotations for
such securities are not readily available, these securities are valued using a
"fair value" methodology.
